02 Aug Are Daily Deal Sites Worth the Investment?
Daily deal sites are also known as group buying sites. They have been quite the rage, and even the major players such as Google and Facebook are jumping on the band wagon. The most popular are Groupon and Living Social.
When Groupon was only two years old, it turned down a $6 billion deal from Google. Today Groupon has close to 80 million subscribers and was named by Forbes as the fastest growing company ever. Groupon has since gone public and added new features to their business model, such as Groupon Now. Go to: http://www.groupon.com/merchants/welcome for more information.
Although each deal of the day sites has their own business model, conceptually they work very similarly. They post offers from businesses at a predetermined discount, such as 50%.
The deal is only good if a certain number of buyers purchase. The system has viral capability which allows shoppers to communicate with others to stimulate buying to reach the minimum purchases required. Groupon handles the transactions and then pays the advertising business 50% of the revenue generated.
Group deal sites are localized to customers and less expensive than traditional advertising such as television.
However, before you get excited and run off to participate with group buying sites, you must determine your costs to create the deal, as well as understand the buyer psychology beforehand.
It is common to offer a 50% discount and then split the revenue 50-50 with Groupon. Do the math! Take your net revenue returned and subtract your costs from that to determine your profit. For example, if a business offers a skin treatment that usually retails for $100, and sells on Groupon for $50, you will receive $25. If the product cost and labor is $25, you’re not making any money, and if the cost exceeds $25, you lose money.
Even though not everyone who purchases redeems before the expiration date, you have to anticipate that they will in order to determine your profits.
Many businesses figure that the offer is a lost leader, but it provides the potential for up sells and repeat business. While this is true in a traditional business model,
customers from Groupon typically want a deal on everything and may refuse to pay more for other services. Why would someone with that mentality suddenly change their mind when they redeem their purchase and pay full retail for other products?
Make certain to plan accordingly and visit the group buying deal sites to see what your competitors are offering. Look for other deals you can offer Groupon customers when they redeem their purchase. For example, we are offering our Groupon customers an exclusive deal if you buy today! Do the math up front and then capitalize on the deal mentality.
• Your business can experience a surge in new customers.
• Plan to receive almost instantaneous payment to help with your cash flow.
• Gather reviews from customers to post online to improve sales.
• Add these new customers to your email or mobile list.
• Your business can lose money if the wrong deal is offered.
• There is the possibility that you may not be able to handle the volume.
• You could devalue your brand by offering steep discounts.
• Groupon wants a 60-day exclusive agreement so your business cannot offer a deal on other sites.
Just remember to use sound business judgment when determining your offer and evaluate your ability to deliver to the potential surge of new customers before you enter the group buying deal marketplace.
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